Thousands of people, many in family groups and sitting on picnic rugs, converged on Hyde Park.

A citizenship ceremony was also held in which 17 people from 14 nations were declared to be new Australian citizens.

A skywriter wrote the word "sorry" over Sydney Harbour, and over Bondi Beach, around midday.

Mr Egan said the day had an increasing focus on reconciliation with the nation's indigenous people.

"I'm also glad to see the large number of people of indigenous backgrounds out celebrating Australia Day," he said.

"A number of people with Aboriginal decent that have the Aboriginal flag and the Australian flag flying is great to see."

Events to mark the day in Sydney also included a flyover by an FA18 fighter jet and a display by the RAAF Roulettes aerial team!

Streets around The Rocks district were closed to traffic as thousands of people took in live entertainment from five stages and buskers.

"You could go to 200 places in NSW today and you'd see a happy scene like you're seeing here in Hyde Park," NSW Australia Day Council chairman Michael Egan said in central Sydney.

"Certainly the crowds around the harbour and on the harbour have exceeded last year".

"If that is replicated around the state, then I think we will certainly see two million people in NSW out at official events this year."